Monday, May 25, 2015

The U.S. District Court for the Northern District of California recently denied a motion to compel arbitration filed by two allegedly affiliated banks that issued department store credit cards, and the one of the issuing banks and another entity that serviced the cards, in a case alleging violations of the federal Telephone Consumer Protection Act (“TCPA”) by calling the debtor’s cellular phone in an attempt to collect on the credit card debt.

The plaintiff stopped paying his credit card in July of 2013 and sent a letter to the issuing bank advising that he could no longer make payments and requesting the bank stop calling him. The issuing bank and its servicer continued making phone calls to the plaintiff. He then sent a second letter in September of 2013 requesting that the calls stop.

The plaintiff sued, asserting claims under the TCPA, the California Rosenthal Fair Debt Collection Practices Act, Cal. Civ. Code §§ 1788 et seq., and state common law claims. The defendants filed a motion to compel arbitration based on the arbitration clauses in the cardholder agreements for one of the two credit cards issued by one of the defendant banks that also serviced on of the two cards (“First Card”). The second credit card agreement issued by the allegedly affiliated bank did not contain an arbitration clause (“Second Card”).

The District Court noted that the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (“FAA”), governs the enforceability and scope of an arbitration agreement and, under the FAA, a party may petition the court having jurisdiction for an order enforcing the arbitration agreement.

The Court also noted that, once a petition to compel arbitration is filed, the district court’s inquiry is limited to a two-part test: first, it must determine whether the arbitration agreement is valid; second it must determine whether the agreement encompasses the claims at issue in the lawsuit. Any doubts are to be resolved in a favor of arbitration.

The parties did not dispute the validity of the arbitration agreements. Instead, the parties disputed whether they applied to the claims raised in the lawsuit.

The defendants argued that the plaintiff’s claims fell within the broadly-worded terms of the cardholder agreements for the First Card which was governed by South Dakota law.

The arbitration clause provided for binding arbitration concerning: "All claims relating to your account, a prior related account, or our relationship . . . including Claims regarding the application, enforceability, or interpretation of this Agreement and this arbitration provision."

The arbitration clause also explained whose claims are subject to arbitration: "Not only ours and yours, but also Claims made by or against anyone connected with us or you or claiming through us or you, such as a co-applicant, authorized user of your account, an employee, agent, representative, affiliated company, predecessor or successor, heir assignee, or trustee in bankruptcy."

Moreover, the arbitration clause provided that it was to be interpreted "in the broadest way the law will allow it to be enforced."

Accordingly, because the issuing banks were alleged to be affiliates, and the servicing entity an agent, the defendants argues that the arbitration provision from the First Card agreement applied to all of the plaintiff’s allegations against all of the entities.

Interpreting the First Card agreement, the District Court agreed that South Dakota had a substantial relationship to the parties, and that state’s principles of contract interpretation were not contrary to any fundamental California policy.

However, the Court concluded that even under South Dakota law, the defendants’ interpretation of the First Card arbitration language was overly broad.

The District Court reasoned that there was no basis on which to conclude that by accepting the First Card agreement, the plaintiff agreed to arbitrate any and all claims that could ever arise between himself and the issuing bank. To do so would mean that “one credit card agreement could be used to dictate the parties’ ‘relationship’ ad infinitum, regardless of the subject matter of their future interactions. That is an absurd consequence.”

The Court concluded that the arbitration clause in the First Card agreement must be limited to the relationship created by those agreements—a relationship between plaintiff and the issuing bank, and not as the servicer or debt collector on any other unrelated card agreement.

The District Court found that there was no reason for a consumer like the plaintiff to believe that he had a direct relationship with one of the bank’s seeking to compel arbitration because that bank identified itself during the collection process only as the servicer for the Second Card.

In addition, District Court found no evidence that the two credit cards were related in any way, other than they were issued by the same bank and that its parent was the servicer bank.

Finally, the District Court found there was no evidence that, when the plaintiff agreed to the cardholder agreement for the Second Card card, he knew or received notice that that account might be serviced in the future by the servicer bank.

Relying on another district court’s holding in In re Jiffy Lube Int’l, Inc., Text Spam Litig., 847 F. Supp. 2d 1253 (S.D. Cal. 2012), which rejected an attempt to compel arbitration of TCPA claims based upon similarly broad language, the District Court here concluded that the language of the First Card agreement was limited to the relationship between the plaintiff and the card issuer, not the servicer or debt collector for the card issuer, because the plaintiff’s claims related only to collection calls for his Second Card account, not the First Card account.

In addition, although the plaintiff pled that the defendants were agents of the First Card issuer, the Court refused to apply the language of the arbitration clause covering “agents” of the issuing bank.

Accordingly, the Court held that the language in the First Card agreement did not encompass or apply to plaintiff’s claims relating to the Second Card, and the Court denied defendants’ motion to compel arbitration.

Tuesday, May 19, 2015

The Court of Appeal of the State of California, Second Appellate District, recently affirmed the trial court’s ruling in favor a bank and its employee as to a plaintiff’s malicious prosecution claim.

In so ruling, The Appellate Court held that the doctrine of the law of the case does not bar application of the doctrine of collateral estoppel to plaintiff’s malicious prosecution claim, and that a magistrate’s determination in the plaintiff’s criminal proceeding on the issue of probable cause defeats the malicious prosecution claim as a matter of law.

The plaintiff sued a bank and its branch manager for malicious prosecution. The dispute arose when the plaintiff went to a local bank branch to cash two insurance checks. The bank’s branch manager refused to do so because she could not verify the signature on the larger check, at which point the plaintiff became irate.

The parties’ accounts of what happened thereafter were diametrically opposed, with the plaintiff claiming he got upset, but did not threaten anyone, and the bank’s employees claiming the plaintiff threatened to blow the bank up. The police were called and plaintiff was arrested and charged with making a criminal threat. The plaintiff was acquitted after a jury trial in the criminal proceedings.

The trial court in this civil case entered judgment in the defendants’ favor after they filed a motion to strike plaintiff’s case under California’s Code of Civil Procedure section 426.16j (the “anti-SLAPP motion”).

The plaintiff appealed and the Second Appellate District reversed the judgment in defendant’s favor, holding that when there is conflicting evidence on the issue of probable cause, the finder of fact must decide whether sufficient facts exist to raise or reject an inference of probably cause.

On remand, the defendants moved for summary judgment, arguing that the plaintiff was collaterally estopped from re-litigating the issue of probable cause, the lack of which is an essential element in a malicious prosecution claim. This was because the magistrate in plaintiff’s criminal case found that probable cause existed at the preliminary hearing based on the branch manager’s testimony that plaintiff had threatened to blow-up the bank, and the trial judge’s denial of plaintiff’s motion for acquittal based on insufficient evidence. The trial court granted the defendants’ motion for summary judgment, reasoning that the finding of probable cause in the criminal case precluded plaintiff from re-litigating the issue in the civil case.

The plaintiff appealed, arguing that the appellate court decided the issue of probable cause in the first appeal and the doctrine of the law of the case precluded defendants from re-litigating that issue. The plaintiff also argued that collateral estoppel did not apply because the magistrate’s probable cause finding was based on lies procured by fraud.

Rejecting the plaintiff’s arguments, the Appellate Court reasoned that under California Supreme Court precedent, in order to state a cause of action for malicious prosecution of either a criminal or civil proceeding must show that the prior action (1) was commenced by or at the direction of the defendant and was pursued to a legal termination in the plaintiff’s favor; (2) was brought without probable cause; and (3) was initiated maliciously. The question of probable cause revolves around whether it was objectively reasonable for the defendant to suspect that the plaintiff had committed a crime.

The Appellate Court next discussed the law of the case doctrine, which applies “when, in deciding an appeal, an appellate court states in its opinion a principle or rule of law necessary to the decision, [which then] becomes the law of the case and must be adhered to throughout its subsequent progress, both in the lower court and upon subsequent appeal.” However, the law of the case doctrine does not apply to issues of which were not raised and determined in the prior appeal.

The Appellate Court affirmed the summary judgment in defendants’ favor because the issue of collateral estoppel was not raised in the first appeal and the doctrine of the law of the case does not preclude applying the doctrine of collateral estoppel. Applying the doctrine of collateral estoppel to the case at bar, the Court concluded that the magistrate’s probable cause finding in the plaintiff’s criminal case defeated plaintiff’s malicious prosecution claim as a matter of law.

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